Consumer health and obesity

Introduction

Insight has been tracking obesity issues since 2003 when the World Health Organisation (WHO) described obesity as a ‘worldwide epidemic’ in its report “Diet, Nutrition and the Prevention of Chronic Disease”. The International Association for the Study of Obesity estimates the total number of overweight and obese people globally to be 1.7 billion. That includes 135 million citizens in the European Union (EU). But the phenomenon is not limited to the developed world. In Africa, Asia, Latin America and the Caribbean the number of obese people is also growing.

Obese and overweight people face an increased risk of premature death, diabetes, cardiovascular disease and cancer. In Europe, unhealthy diets and lack of physical activity are the leading causes of avoidable illness and premature death. A former US Surgeon General estimates that 300,000 deaths a year in the US can be attributed directly to obesity. Apart from the obvious human suffering this gives rise to, the economic consequences are staggering. The EU estimates that obesity currently accounts for up to 7% of the Union's health care costs, and these costs are expected to rise. The total cost of dealing with the condition and its related illnesses in the US in 2000 was estimated to be $117 billion. In addition to the direct financial costs, there are also wide-ranging social costs related to workdays lost, doctors’ visits, disability pensions and diminished quality of life.

Multiple factors contribute to the growing number of people becoming overweight and obese. But the fundamental cause is an imbalance between calorie intake and energy expended: people are eating too much and exercising too little.

Clearly, food companies have an enormously important role to play in addressing diet and consumer health issues.  The extent to which they step forwards and play a constructive and active roll will, Insight believes, have a significant impact on their future prospects.  In some markets, food companies are already being threatened with more stringent regulation, from labelling to marketing and advertising. Some have already faced litigation which, even when not successful, has resulted in bad publicity for the firms involved. Further, governments are beginning to support awareness-raising campaigns aimed at changing consumers’ eating habits, and these are beginning to work: many companies have started to see big shifts in their customers’ spending. Finally, companies’ brands and reputations are at stake if they do not demonstrate their commitment to helping their customers’ and their families improve their food choices and lifestyles. Insight therefore believes that it is in the best interests of food companies to work with other stakeholders to help consumers to manage their diets and to live healthy, active lives.

The principal objective of our engagement on consumer health and obesity is to encourage food companies to respond effectively to these business risks, while looking for opportunities to develop healthier products and offerings, build their revenues and burnish their reputations. Our work on consumer health and obesity comprises:

• Engaging with companies
• Conducting research on how well major food companies are responding to this global health crisis.
  
• Developing and publishing a set of best-practice recommendations for food companies to encourage them to manage consumer health issues effectively.

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Engaging with companies

We began researching consumer health issues in depth in 2003. We published our first article on the subject in our Autumn 2003 Bulletin (page 12). We also began meeting with food producers and retailers to establish what measures they were taking to address consumer health issues. We discovered that most were only in the early stages of developing their policies and strategies to respond to these issues. We made recommendations to these companies as to the steps they could begin taking to improve their management of these emerging risks. Commentary on the nature and status of that engagement can be found in our engagement reports.

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Conducting research

During 2005, Insight advised a team of researchers at City University, led by Professor Tim Lang, on a comparative study to assess how well 25 of the world’s leading food companies – whose combined turnover amounts to over $1 trillion – are responding to the consumer health challenge. The results of this research were presented at a seminar, entitled "Obesity: Re-shaping the global food industry", in January 2006 for investors and other stakeholders hosted by Insight and JP Morgan. The research report, "The Food Industry, Diet, Physical Activity and Health: A Review of Reported Commitments and Practice of 25 of the World's Largest Food Companies", was published in April 2006. The report concluded that most of the companies reviewed did not seem to recognise the potential regulatory and litigation risks they face, nor how they might be affected by or might address, changing consumer buying habits. The research found that Unilever, Cadbury Schweppes, Kraft and McDonalds had gone furthest in articulating reasonably comprehensive policies and programmes to address consumer health concerns, and had begun to implement these policies. However, the other companies analysed, particularly those in the supermarket and food service sectors, had made limited progress.

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Establishing and promoting a best-practice approach

As a result of our engagement with UK food companies, as well as the results of our work with City University, Insight noted that despite growing awareness in the UK and other developed countries of the seriousness of obesity as a long-term health issue, no organisation had set out a comprehensive set of proposals suggesting how companies might respond.

Thus, in January 2007, Insight released a report with the Healthy Eating Active Living (HEAL) programme of the International Business Leaders Forum (IBLF) entitled "A Recipe for Success: how food companies can profit from consumer health". The report aims to spur food companies to go further in addressing consumer health issues so as to meet the needs of their customers while protecting shareholder value. The report sets out a comprehensive series of recommendations for companies on all aspects of managing its business from a consumer health perspective: it suggests action companies can take on everything from strategy and governance, key performance indicators (KPIs) to measure progress, marketing and advertising policies, portion sizing, the salt, sugar and fat content of food, to supporting employee and community sports programmes.

In spring 2007, Insight teamed up with JPMorgan’s ESG research team to benchmark of ten of the world’s largest listed food companies’ performance against the best practice framework laid on in "A Recipe for Success". We published the results in April 2008; for the full report see "Proof of the Pudding - Presentation" and for the Executive Summary see "Proof of the Pudding Executive Summary".

The companies we analysed were, in alphabetical order: Cadbury Schweppes, Coca Cola, Danone, Heinz, Kelloggs, Kraft, Nestle, Pepsico, Premier Foods and Unilever.

We first evaluated the quality of the companies’ reporting in this area, using their annual reports, corporate responsibility reports and websites. We allocated each company a provisional score and sent this analysis to them, to form the basis of the next stage of our engagement, a face-to-face meeting. Seven of the ten companies agreed to meet; one agreed to discuss the results via email. Two companies were not in a position to meet. Following those meetings, the companies were allocated a revised score for their performance in addressing obesity and related health issues. They were then given the opportunity to comment on that analysis and provide any additional information we had missed. In December, we assigned each company a final score and sent its final results with a detailed set of recommendations as to how it might improve both its performance and reporting this area.

The final ranking of the companies was as follows:

1. Danone
2. Unilever
3. Nestlé
4. Kellogg
5. Cadbury Schweppes
6. Kraft
7. Heinz
8. PepsiCo
9. Coca Cola
10. Premier Foods

The analysis also yielded a large number of insights about how companies are responding on different issues, for example.

• European companies are making much greater headway than US-based companies.
  Most companies are much more focused on putting in place policies and programmes in developed markets, where they are threatened by regulation and intervention, rather than in the developing world.
• None of the companies yet sets clear targets and KPIs to guide their commitments relating to health and wellness. 
• Few companies have yet carried out a full review of the nutritional profile of their product portfolios or made significant headway in reformulating their least healthy products. 
• On-pack labelling is very varied by company and market; much greater consistency is needed. 
• Few companies have adopted fully comprehensive responsible marketing policies that apply to all media, and on a global basis.

A full analysis of the findings is available in the full report and the Executive Summary.

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Publications

Reports

"Proof of the Pudding" presentation, April 2008

"Proof of the Pudding Executive Summary", April 2008

"A Recipe for Success: how food companies can profit from consumer health", January 2007

Briefings

"Obesity: how is the food industry responding", March 2006

"Globesity: the global obesity epidemic " (page 12), September 2003